What is economic impact analysis?
An economic impact analysis provides a comprehensive look at how an organization, industry, or event affects the economy of a region. These effects on the national, state, regional, or local economy are referred to as direct, indirect, and induced impacts, and are typically measured in terms of jobs, earnings, economic output, and taxes. An economic impact analysis may also be referred to as an economic impact report or an economic impact study.
In other words, an economic impact analysis measures the positive outcomes an activity has on an economy.
What are direct, indirect, and induced effects? What is the ripple effect?
All economic activities (direct effects) create “ripples” in the economy that are referred to as indirect and induced effects. For example, a hospital employs people, buys goods and services (e.g., medical supplies, food services, etc.), and invests in new and improved facilities (direct effects) which generates revenue and supports local and state jobs (indirect effects). Employees of the hospital and the companies from which it buys goods and services use increased earnings to buy groceries, transportation, housing, and other goods and services (induced effects). Total impacts are the combined direct, indirect, and induced effects.
How are economic impacts measured?
There are several ways to measure economic impacts. We typically use an input-output analysis methodology called IMPLAN, which was originally developed by the U.S. Forest Service in the 1970’s and is one of the most respected and widely used approaches to regional economic impact analysis.
Who needs an economic impact study?
Organizations typically use impact studies to support their advocacy and communication efforts, to affect public policy, and to pursue approvals and/or funding from government agencies and/or other partners. Health systems, renewable energy companies, universities, industry organizations, economic development organizations, and real estate developers commonly use economic impact analyses.
What is a multiplier?
Economic impacts are often expressed as multipliers, which are simply the ratio of total (direct, indirect, and induced) to direct. A multiplier provides an estimate of the additional output, employment, or income in the economy supported by the direct output, employment, or income associated with an activity or organization.
For example, if hospitals have an employment multiplier of 2.13 in New York, for every job directly supported by a hospital, an additional 1.13 jobs are supported in New York’s economy in the form of indirect and induced jobs. Similarly, multipliers can be estimated for output and labor income, as well as other factors.
Can organizations estimate their own economic impacts?
If you understand economic theory and have access to an input-output analysis tool, you can conduct your own analyses. While a basic analysis can provide some insights, it may not capture the full complexity or accuracy of a professional economic impact study conducted by experts. For major decisions or policy recommendations, a firm specializing in economic impact analysis can conduct thorough and reliable analyses that take into account a wider range of economic factors and methodologies and provide an unbiased, third-party evaluation of your economic activities.